Boeing vs. Airbus – clash of the dwarfs?

September 4, 2009

By the Monitor's Editorial Board

The legal battle between Boeing and Airbus has always been considered a contest of titans: The world's two leading airplane makers, each accusing the other of being illegally pumped up by billions of dollars in government-subsidy steroids.

The case before the World Trade Organization (WTO) – which handed down a confidential decision on Friday that reportedly favored Boeing – is often characterized as the biggest dispute, in dollar terms, to ever be litigated before the WTO.

But these titans suddenly look like dwarfs in the context of the "great recession." In the past year, governments have injected far larger sums into their economies, artificially bulking up banks, automakers, and other companies. Analysts worry that a more encouraging attitude toward government assistance might be settling over the globe. What would be the relevance of Boeing-Airbus then?

Were the world to drift toward much higher levels of government subsidies, the global economy would surely suffer. Subsidies distort the trade that grows economies. And they suppress the market-winnowing that sorts useful services and products from duds.

No one denies that government supports are part of the economic landscape. But that's why countries negotiate trade agreements and join the WTO – to tame that wilderness and establish rules that put countries at an equal advantage.

In that light, it's encouraging that negotiators agreed Friday to restart stalled global trade talks later this month. Known as the Doha Round, the talks were launched eight long years ago to help developing countries grow by opening up trade.

The developing countries complain bitterly that agricultural subsidies in rich countries undercut their own farm goods. Rich countries, in return, don't like the developing countries' high tariffs that keep out their goods. Reaching a Doha deal could add $300 billion to $700 billion to the global economy each year, studies estimate. That's a much more sustainable – and fair – economic stimulus than government subsidies.

Doha is sure to feature at the G-20 meeting in Pittsburgh in late September, when leaders from the world's 20 largest economies will again meet to coordinate responses to the economic crisis. That meeting should also tackle the subject of "exit strategies" – a way out of the emergency stimulus that governments applied to rapidly declining economies. While G-20 leaders may disagree on when the unwinding should begin, they should put plans for it in place.

The Boeing-Airbus fight is not over yet. It will continue on through another WTO ruling next year and perhaps through appeals from both sides. But instead of seeing this case as washed out by a tidal wave of subsequent subsidies, perhaps it can point the way back to the higher ground of government restraint.

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